Takeover approach sends Woolworths shares soaring

Shares in the high street retailer Woolworths shot ahead by more than 20 per cent today after a potential bidder confirmed its interest in a takeover.

Shares in the high street retailer Woolworths shot ahead by more than 20 per cent today after a potential bidder confirmed its interest in a takeover.

Private equity firm Apax Partners, which helped fund the takeover of New Look last year, said it was at the early stage of considering a move - thought by experts to be worth around £700 million.

If it decides to proceed, Apax said it would approach the board of Woolworths to gain its support.

The move follows a tough Christmas season for the retailer, which recently described its performance as "disappointing" after sales of toys and blockbuster DVDs failed to meet expectations.

It has been losing out to rivals such as Tesco as supermarkets gain a larger market share of non-food items such as CDs, films and toys.

A decline in its shares was reversed today when the stock soared to its highest level in more than two years.

Apax said: "Considerations are at a very early stage and there can be no certainty at all that any offer will ultimately be forthcoming."

The firm said a further announcement would be made when appropriate.

Apax was one of the two private equity firms which recently sold DIY retail chain Wickes to builders' merchant Travis Perkins for £950 million.

The deal is likely to be a leveraged buyout, where Apax believes the Woolies operation will generate enough cash for it to be able to pay down debt on the deal quickly.

The exact structure of the deal is still to be detailed, although Apax said it was considering a move on behalf of a new company established by funds it advises. It is not known if it will join forces with other parties.

The private equity group has investments in more than 335 companies around the world, with many of its deals in the form of management buyouts.

Hilary Cook, at Barclays Stockbrokers, said Woolies had been one of the companies she had forecast would be taken over this year.

She added: "Its shares have under-performed and it is a cash generative business. It might as well be private."

Shares rose 8.5p to 49p - valuing the company at almost £700 million.

However, analyst Richard Ratner, at stockbroker Seymour Pierce, said talk of a 60p- a-share offer appeared "excessive".

He added: "Who is going to argue if a private equity company wishes to be so generous?"

Seymour Pierce is expecting Woolworths to post pre-tax profits of £68 million this financial year against £66.8 million last time.